Delta Air Chases Rivals With $1.2 Billion Upgrade at JFK Airport

Construction workers walk past a Delta Air Lines Inc. plane parked near a construction site at terminal 4 at John F. Kennedy International Airport in New York on Nov. 16, 2011. Photographer: Scott Eells/Bloomberg

Dec. 13 (Bloomberg) -- Delta Air Lines Inc.’s $1.2 billion
overhaul at New York’s Kennedy airport is taking shape as the
carrier bolsters its international hub in the busiest and most
competitive U.S. aviation market.

Expanding Terminal 4 will bring all Delta’s overseas gates
under one roof and add a lounge as big as five basketball
courts. That consolidation will allow for the demolition of the
adjacent, 1960s-era Terminal 3 that a Delta executive once said
evoked a “Third World country.”

“They are losing a certain amount of traffic because
people dread that terminal,” said Ray Neidl, a Maxim Group LLC
analyst. Delta’s Kennedy redo is “going to make them much more
competitive out of New York. The payback is a no-brainer.”

Delta is playing catch-up after rivals invested more than
$3 billion during a decade of New York airport upgrades. Like
United Continental Holdings Inc. and American Airlines, Atlanta-based Delta seeks to win more of the Wall Street fliers prized
for frequent, last-minute bookings in premium seats.

John F. Kennedy International Airport has been a pillar of
Delta’s strategy to boost international flying since the
carrier’s 2007 bankruptcy exit. New York flying is likely to be
discussed at an investor presentation tomorrow, after the
subject was broached on seven previous 2011 conference calls.

Delta’s project chief is Harry Olsen, who built the New
York Yankees’ $1.5 billion baseball stadium. He must open the
new terminal by May 2013 without disturbing daily rhythms at
Kennedy as backhoes and bulldozers smoothe earth a few hundred
feet from where carriers such as El Al Israel Airlines and
Virgin Atlantic Airways Ltd. taxi and park wide-body jets.

‘Difficult Thing’

“The most difficult thing is the logistics and scheduling
and moving equipment around planes,” Olsen, 55, said in his
first interview about the job as he sloshed through
construction-site mud and skirted slippery residue from fire-retardant foam sprayed on overhead steel girders.

The last beam was installed in early November and most of
the concrete for floors and gate areas has been poured. Sections
of walls are being installed in the coming weeks.

While having Kennedy as a gateway for New York’s lucrative
travel market was a plus for Delta, aging facilities were a
liability in an industry where creature comforts are the
standards by which airlines set themselves apart.

JetBlue Airways Corp.’s Terminal 5 at JFK opened in 2008
and cost $743 million, and American parent AMR Corp. spent $1.3
billion on a Kennedy terminal in 2007. Continental Airlines, a
United Continental predecessor, invested $1.4 billion in 2001 at
New Jersey’s Newark Liberty airport.

‘Massive’ Advantage

“The customer experience will be a thousand times
better,” said Philip Grieci, general manager of hub operations
at JFK for Atlanta-based Delta. “It will give us the advantage
in international. It will be massive.”

The lack of discount competitors on overseas flights means
higher prices than on domestic trips. Delta’s cheapest walk-up
fare in business class for departure tomorrow to London Heathrow
from Kennedy is $5,844, compared with $3,112 to Los Angeles,
JFK’s most-traveled U.S. route.

Filling more premium seats may help boost earnings at
Delta, whose 1.3 percent profit margin over the past 12 months
ranked seventh among 11 carriers in the Bloomberg U.S. Airlines
Index, according to data compiled by Bloomberg. The shares
tumbled 35 percent in the 12 months through yesterday, the
third-worst performance in the gauge.

Delta’s Challenges

One of Delta’s challenges at Kennedy has been gates split
between Terminal 4 and Terminal 3, the saucer-shaped building
that inspired Treasurer Paul Jacobson’s “Third World country”
remark at an airline finance conference last year.

All of Delta’s international gates will be consolidated
into Terminal 4’s Concourse B, where the airline already
operates. The building’s footprint will expand by a third with
481,000 square feet (44,700 square meters) of new space.

A 24,000-square-foot SkyClub lounge will be the biggest in
Delta’s system and among the largest in the U.S., complete with
showers and massage rooms. A tunnel with moving walkways will
link Terminal 4 to the adjacent Terminal 2, which serves
domestic Delta destinations. Delta also operates a domestic hub
at New York’s LaGuardia airport.

Delta’s changes will eliminate hassles such as a Terminal 3
customs area so small that incoming passengers are often kept on
planes for a half-hour until they can fit inside, and six
different security checkpoints that confuse passengers, said
Thomas Lang, the airline’s deputy program director for JFK.

No Room

Delta also will save fuel and time with 15 new parking
spots for jets that will be created once Terminal 3 is
demolished, instead of having to taxi them halfway across the
airport at night, which can take an hour or two.

The refurbished terminal is “going to be magnificent, the
crown jewel in their New York strategy,” said Maxim’s Neidl,
who rates Delta as “buy.”

About 400 workers are on site, and with the completion of
below-ground work such as sewage, utilities and fuel lines,
“it’s going awfully fast,” said Olsen, who began work in early
2011. The project is on time and on budget, he said.

On any given day, 10 to 15 truckloads of cement are poured,
and the project will require 158,000 tons of asphalt and 1.38
million feet of wiring, more than the distance between New York
and Washington. Almost 2 million man-hours will be spent on the
project.

Delta’s upgrades are overdue, said Richard Green, director
of the Lusk Center for Real Estate at the University of Southern
California, who used to fly through Kennedy regularly. He said
he built in three or more hours for international connections to
ensure he could clear customs and switch terminals.

“I’m so glad they’re doing something to improve JFK,”
Green said. “JFK has such capacity issues and it’s not like
anybody can do anything about it. Whatever Delta can do to
improve the areas they control will help.”